The value of downstream traceability in food safety management systems: an empirical examination of product recalls

Abstract

Non-conforming food products that reach consumers create potential for consumer harm and negative financial consequences for recalling firms. Food quality management systems are therefore of critical importance to consumers, policy-makers, and firms. In addition to implementing a Food Safety Management System (FSMS) for regulatory compliance, a firm may invest in a certified FSMS that enables downstream traceability. Downstream traceability is the ability to follow a product through the supply chain from production to point of sale. We use information processing theory (IPT) and supply chain coordination theory (SCCT) to hypothesize that downstream traceability improves integration and coordination, and hence, outcomes, of a product recall. Evaluating the role of downstream traceability systems in enabling firms to manage quality failures and associated outcomes is relevant because managers and policy-makers need to understand incentives for making such investments. We empirically investigate the effect of downstream traceability on the length of time unsafe product is in distribution, number of products recalled, incidence of product harm, and shareholder value using event study and regression methods in a sample of 211 food recalls announced in the United States (U.S.) from 2007–2013. We find downstream traceability enhances food safety by reducing time in distribution and number of products, but is not significant with respect to product harm. Furthermore, this capability mitigates negative shareholder value impacts. These findings suggest that downstream traceability is both fiscally and socially responsible. These results contribute to the extant academic literature and offer new insights to both practitioners and policy-makers.